Tax Type
Individual Income Tax
Description
Unified nonresident individual income tax returns
Topic
Basis of Tax
Taxpayers' Remedies
Date Issued
10-28-2002
October 28, 2002
Re: Request for Ruling: Individual Income Tax
Dear *****:
This will reply to your request for a ruling on behalf of your clients, ***** ("the Partnership") and ***** (the "LLC"), concerning the filing of unified nonresident individual income tax returns on behalf of their common nonresident partners and members. I apologize for the delay in the department's response.
FACTS
The Partnership is a multistate professional partnership with both resident and nonresident partners. The LLC is an investment company. Many of the partners are also members of the LLC. You are requesting permission to include nonresident individuals with income from the Partnership and the LLC in the respective unified individual income tax returns for the taxable year ended December 31, 2000.
RULING
Title 23 of the Virginia Administrative Code ("VAC") 10-130-20(C)(2) provides that the Tax Commissioner may grant permission to partnerships to file a statement of combined partnership income attributable to nonresident partners. The permission is granted based upon such terms as the parties may agree. This provision of the regulations relieves the nonresident partners of the responsibility of filing nonresident individual income tax returns. Similarly, the department has granted permission to S corporations (Public Document ("P.D.") 84-260, 12/28/84), trusts (P.D. 91-213, 9/06/91) and limited liability companies (P.D. 97-334, 8/27/97) to file unified nonresident individual income tax returns on behalf of their nonresident shareholders, beneficiaries and members, respectively.
A unified return is an administrative convenience that allows nonresident owners and beneficiaries to pay their respective Virginia tax at the entity level. The need for filing a separate Virginia return for each nonresident owner or beneficiary is also eliminated. It is a privilege extended by the department to the owner and beneficiaries at their election. The convenience to the nonresident owners and beneficiaries usually outweighs any benefits that may be lost. Certain conditions are imposed in exchange for such convenience.
In this case, almost all of the Partnership's partners are also members in the LLC. You have requested permission to include nonresident partners with income from both the Partnership and the LLC in the unified returns of the Partnership. Such a return would only include the nonresident partner's income from the Partnership. Likewise, the nonresident members with income from both the Partnership and the LLC would be allowed to report their income from the LLC in the unified return of the LLC.
It has been the department's long-standing policy to exclude from a unified nonresident individual income tax return any partner, beneficiary, shareholder or member with income from multiple sources in Virginia. The purpose of this policy is to negate any tax advantage or disadvantage that could result from a nonresident individual reporting Virginia income for one taxable year on two different returns and alleviate possible disclosure issues.
Because Virginia statutes do not permit a deduction or adjustment for income included in a unified nonresident individual income tax return, a nonresident individual who is required to file a nonresident individual income tax return and is included in a unified return could have income included in two Virginia income tax returns for the taxable year. On the other hand, because income included in unified individual income tax returns is computed at the rates specified under Code of Virginia § 58.1-320, splitting income between two returns would allow portions of the income to be taxed in the lower tax brackets twice. In such a case, nonresident owners and beneficiaries would receive an advantage that could not be achieved if individual nonresident returns had been filed because the income divided between two tax returns would be taxed at a lower effective rate.
The department must balance the convenience that unified filing provides to nonresident owners and beneficiaries against the administrative burdens that would be imposed if nonresidents were permitted to split income among two or more returns. If the department granted your request, it would be required to overturn long-standing policy and offer similar relief to all unified return filers, resulting in a significant administrative burden and possibly hundreds of amended returns. The department's ability to monitor the filing of Virginia nonresident returns of such partners would be significantly affected, requiring painstaking calculations and manual tracking of such nonresidents to ensure compliance with Virginia laws.
Based on the foregoing, your request must be denied. However, letters will be issued granting the Partnership and the LLC permission to file unified returns in accordance with conditions set forth by the department for their respective nonresident partners and members who have no other income from Virginia sources.
This ruling has been made subject to the facts presented to the department as summarized above. Any change in these facts or the introduction of facts by another party may lead to a different result.
Copies of the Code of Virginia, the Virginia Administrative Code, and public documents cited are available online in the Tax Policy Library section of the Department of Taxation's web site, located at www.tax.state.va.us. If you have any questions concerning this ruling, you may contact ***** in the department's Office of Policy and Administration, Appeals and Rulings, at *****.
Sincerely,
Kenneth W. Thorson
Tax Commissioner
AR/37879E
Rulings of the Tax Commissioner